Diamondback to buy Energen in $9.2bn all-stock deal

October 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2018 Issue

In a transaction described as a “transformational moment”, independent oil and natural gas company Diamondback Energy, Inc. is to acquire oil-focused exploration and production company Energen Corporation in an all-stock transaction valued at approximately $9.2bn, which includes Energen’s net debt of $830m.

Under the terms of the definitive merger agreement, shareholders of Energen will receive 0.6442 shares of Diamondback common stock in exchange for each share of Energen common stock, representing an implied value to each Energen shareholder of $84.95 per share.

The transaction will create a premier large cap Permian independent, with peer-leading production growth, cost structure and capital efficiency. The combination will also result in Diamondback having over 266,000 net Tier One acres in the Permian Basin, an increase of 57 percent from Diamondback’s current Tier One acreage of approximately 170,000 net acres.

Diamondback has stated that high grading of inventory will allow for an acceleration of cash flow and reinvestment, with a ‘grow and prune’ strategy utilised for non-core assets and cash reinvested into higher return projects.

“This transaction represents a transformational moment for shareholders of both Diamondback and Energen as they are set to benefit from industry leading production growth, operating efficiency, margins and capital productivity supporting an increasing capital return programme,” said Travis Stice, chief executive of Diamondback. “The Energen team has done an outstanding job assembling a portfolio of Tier One acreage in both the Midland and Delaware basins, which will complement Diamondback’s current portfolio of best-in-class execution and low-cost operations.”

Upon the close of the transaction, Diamondback shareholders will own approximately 62 percent of the combined company, with Energen shareholders owning approximately 38 percent. The resulting capital structure is consistent with Diamondback’s strategy of maintaining a conservative financial profile and will accelerate its path to an investment grade credit rating profile.

“We are very pleased about this transaction and believe the combination of the two companies’ quality assets, track record of execution and peer-leading cost structures will form an even stronger, large-cap independent producer uniquely positioned to drive growth and development in the Permian Basin,” said James McManus, chairman and chief executive of Energen. “This transaction is the outcome of a comprehensive strategic review by Energen’s board with the assistance of our outside advisers.”

The transaction, which is expected to be completed by the end of the fourth quarter of 2018, is subject to the approval of Diamondback and Energen shareholders, certain regulatory approvals and other customary closing conditions. Additionally, Diamondback’s board of directors and executive team will remain unchanged, and will continue to be headquartered in Midland, Texas.

Acting as exclusive financial adviser to Diamondback is Citigroup Global Markets, Inc. Akin Gump Strauss Hauer & Feld LLP is acting as legal adviser. J.P. Morgan Securities LLC and Tudor, Pickering, Holt & Co are acting as exclusive financial advisers to Energen, with Wachtell, Lipton, Rosen & Katz acting as legal adviser.

The transaction has been unanimously approved by the board of directors of both companies.

Mr Stice concluded: “We look forward to welcoming Energen’s employees as members of the Diamondback team, and applaud them for the hard work and dedication they have put forth to create this opportunity for the two teams to become one.”

In conclusion, Mr McManus said: “We believe this all-stock transaction with Diamondback is the best path forward for our company and provides Energen shareholders with an excellent value for their investment, now and in the future.”

Fraser Tennant